The Chinese yuan is looking to kick off a new rally against its US peer following a quiet February that saw the USD/CNY currency pair flatline. But disappointing economic data could limit the yuan’s rise as financial markets start March. Is the Chinese economic recovery slowing down, or is this a blip on the radar?
According to the National Bureau of Statistics (NBS), the manufacturing purchasing managers’ index (PMI) clocked in at 50.6 in February, the worst reading since May of last year, and fell short of the market forecast of 51.1. This also represented the third consecutive month of a falling manufacturing PMI.
While the metrics expanded, they grew at a slower pace. This included output, new order growth, buying, and business sentiment. New order growth and new export orders slumped last month.
The non-manufacturing PMI slipped to its lowest level in six months, coming in at 51.4 in February, down from 52.4 in January. The economy reported a contraction in new businesses, export sales, and employment. But business sentiment improved considerably last month.
Meanwhile, the private sector reading of the manufacturing PMI also eased in February, slowing to a nine-month low of 50.9 and falling short of the median estimate of 51.5. According to Caixin, output, new order growth, and export sales disappointed projections. Business sentiment soared to a seven-year high.
The group will release its services and composite PMI for February on Tuesday. Later this week, the NBS will post its January-February trade data.
Has the recovery hit the pause button? According to Reuters, a policy advisor to the People’s Bank of China (PBoC), Liu Shijin, anticipates the nation’s gross domestic product (GDP) expanding 8% to 9% this year. Beijing could return to a “high-growth” period due to the low base in the world’s second-largest economy when the GDP increased 2.3%.
This prediction is in line with HSBC analysts that China could grow 8.5% in 2021, leading the global economic recovery. But officials say that an average GDP growth rate of about 5% for 2020 and 2021 would be a “not bad” outcome.
Officials are scheduled to release a government work report on Friday that will include a GDP target rate for 2021.
Since the start of the year, there has been a lot of discussion over the state of monetary policy. The consensus is that the PBoC will begin tightening slightly, which was seen last week when the central bank allowed a net liquidity withdrawal of $6 billion in the financial markets.
The USD/CNY currency pair fell 0.12% to 6.4672, from an opening of 6.4752, at 11:37 GMT on Monday. The EUR/CNY declined 0.36% to 7.7893, from an opening of 7.8198.
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